The impact of IMO MARPOL sulphur regulations on UK refining
MARPOL is short for marine pollution and is derived from the International Convention for the Prevention of Pollution convention in 1973 and later modified by the protocol of 1978. This gives the name MARPOL 73/78, or simply the MARPOL convention. Annex VI of the convention covers air pollution from shipping.
The International Maritime Organisation (IMO) has set up ‘Sulphur Emission Control Areas’ (SECAs) under MARPOL where sulphur emission standards are more restrictive than in the open sea. In Europe, the North Sea & English Channel SECA was set up in 2007 and added to the Baltic Sea SECA established the previous year. Today, these areas are referred to ECAs since they could potentially include other emissions (however, they currently restrict only sulphur emissions).
Figure 1: Emission Control Areas in the EU (illustrative only)
The IMO, through its Marine Environment Protection Committee (MEPC), has established new emission standards in MARPOL Annex VI. The revised standards came into force from 1st July 2010 and are shown below:
Figure 2: Evolution of Marine Fuel Sulphur 2010-2020
(Note: SCMF - Sulphur Content of Marine Fuels Directive; FQD – Fuel Quality Directive)
Figure 3: Comparison of Marine Sulphur Levels with other Fuels (ppm)
The marine market and MARPOL changes
In terms of market size, the annual demand for marine fuel is approximately 240 million tonnes (mte).
The tightening of the MARPOL sulphur specifications comes essentially in two stages (as set out in Figure 2):
- Jan 2015: the sulphur levels for fuels consumed in ECAs were reduced from 1.00 to 0.10 mass % (1000ppm). To comply with this change, the EU is expected to switch from low sulphur residue to gasoil. This will consume an additional ~15mte of gasoil1 which will be supplied to the marine market. In the EU, there is already a deficit in this grade of ~27mte/ year1 and the increase in gasoil supply to the marine market will add further to this shortfall.
- Jan 2020: on 27th October 2016, the IMO voted at MEPC 70 to adopt the MARPOL proposal to move to 0.50% maximum sulphur global limit for ship bunker fuels from 2020. As such, the sulphur level in the global market for marine fuel will reduce from 3.50 to 0.50 mass %. There is also an alternative within MARPOL which permits the use of abatement measures on ships (e.g. exhaust flue gas scrubbing), or sulphur trading schemes, to give an equivalent environmental performance to burning lower sulphur fuels. The Pollution Prevention and Response sub-committee will discuss some of the practical problems with the aim of improving the transition to the new limit.
How the transition is managed will determine the impact on the refining and shipping industry.
To meet the IMO 2020 scenario, the refining industry will need to convert around 150mte of residue to 0.50 mass % sulphur which will have a massive impact on refinery configuration and operations. Some alternatives for refineries to manufacture this fuel include:
- Substantial investment in upgrading fuel oil residues to gasoil grades – but as many refiners are global companies they will only make such investments in locations with good returns.
- Reduction of residue production through changes in crude slate – but suitable crudes will trade at a premium and refining margins are likely to reduce.
- Residue destruction (i.e. not produce fuel) – also requires great investment.
- Desulphurisation of residues and blend with low sulphur gasoils – again requiring great investment.
Whether or not a sufficient volume of 0.50 mass % sulphur fuel will be available for 2020 remains to be seen.
UK refining and marine
There are currently six operating refineries in the UK processing ~63mte crude oil and other feedstocks per year (this is ~10% of the total EU capacity). The process flow diagram for a typical UK refinery is as follows (not all have the same units and some have units not shown on the diagram):
Figure 4: Typical Conversion Refinery Process Flow Diagram
(Source: Statistical Review 2016)
Marine fuels are manufactured using product from either the Vacuum or Visbreaker residue which is then blended to make grades typically to the ISO 8217 marine fuel specification and other fuel oils.
The sulphur content of these fuels is therefore determined by the sulphur level of the crude oil processed. This is illustrated in the following table which indicates the typical properties of some crude oils.
|Crude ||Country ||Crude oil, |
mass % sulphur
|Fuel oil residue, |
mass % sulphur
|Ekofisk ||Norway ||0.21 || 0.69 |
|Brent ||UK ||0.42 ||1.27 |
|Urals ||Russian ||1.35 ||2.78 |
|Dubai ||Dubai ||2.13 ||4.05 |
Figure 5: Crude Oil Data
Currently, UK refineries process crude oils predominantly from the North Sea (52%)2 and typically manufacture fuel oil to meet a 1.00 mass % maximum sulphur level, in line with current standards for inland consumption and marine in the North Sea ECA. Fuel oil is an excess product and 1.00 mass % material is widely traded in the export market.
To manufacture fuel oil products meeting 0.50 mass %, new process units will need to be added to upgrade and/or desulphurise the residue streams depending on economic choices. Refiners could choose to add heavy oil conversion processes to upgrade residues into higher value products. Gasoils from these upgrading projects would then source the marine requirement. The processes required are high pressure and high temperature, and consume huge volumes of hydrogen which must also be manufactured (releasing further CO2). The capital cost is substantial, operating costs are much higher and lead times for construction are in excess of five years.
Concawe2 have studied a number of scenarios and conclude that, within the EU, the capital cost of the facilities to meet the IMO 2020 scenario could be as high as $65bn with a corresponding increase in CO2 emissions of up to 40mte/year (~25% increase). These are in addition to all other demands on refiners to cover other environmental, quality and demand changes during the same period. In the UK, with half of the refineries currently for sale, and the outlook for refining margins not encouraging in the medium to longer term, it is unlikely that a business case could be made for investments of this magnitude.
Figure 6: Weak Refining Margins ($/bbl) Forecast to Continue
(Source: Wood Mackenzie, 2009)
In terms of supply and demand balance and based on current trends, the UK is projected to require imports of more than 20mte/year of combined jet fuel and diesel by 2020, based on the current manufacturing capability3. The increased demand for distillates as marine fuel on a global basis will reduce their availability for the UK to make these imports.
The UK already has excess fuel oil, and the change to increase the use of gasoil for marine will weaken the value of fuel oil residue as there will be limited outlets – mainly blenders and those with access to flue gas scrubbing equipment. As a result, refining margins seem likely to weaken for those who do not invest, adding further pressure to the continuing viability of those operations.
The MARPOL 2020 requirements therefore raise further UK supply resilience questions
(1)Source: Concawe, Impact of marine fuels quality legislation on EU refineries at the 2020 horizon (report 3/09)
(2)Source: BEIS statistics